Posts
From what I can see, the countries that are going to suffer the most from climate change are developing ones. As we economists are constantly worried about the efficient use of resources, I am surprised no one asked before whether one should rather invest in mitigating climate change or in improving development aid for those most affected countries.
Lucas Bretschger and Nujin Suphaphiphat try to answer this question with a model where climate change leads to a faster capital depreciation (think: more hurricanes, flooding and tornadoes). The model has two countries, a rich, capital-intensive one and a poor one. The available policies are devoting resources to pollution control or directing transfers to the poor country, which could increase its capital. While the first is obviously better for the rich country, it turns out to be also better for the poor one under fairly general conditions. The reason is that transfers have only a mild effect on growth, whereas this is not-trivial if you can avoid a faster depreciation of capital. Indeed, if you know that your investment will last longer, you will do more of it. The availability of resources for savings and investment is secondary. And that is even without assuming that development aid is not effective, as many believe.
Lucas Bretschger and Nujin Suphaphiphat try to answer this question with a model where climate change leads to a faster capital depreciation (think: more hurricanes, flooding and tornadoes). The model has two countries, a rich, capital-intensive one and a poor one. The available policies are devoting resources to pollution control or directing transfers to the poor country, which could increase its capital. While the first is obviously better for the rich country, it turns out to be also better for the poor one under fairly general conditions. The reason is that transfers have only a mild effect on growth, whereas this is not-trivial if you can avoid a faster depreciation of capital. Indeed, if you know that your investment will last longer, you will do more of it. The availability of resources for savings and investment is secondary. And that is even without assuming that development aid is not effective, as many believe.
1 comment:
This debate has been around for a while; back in the early days of climate change economics much was made of the likely higher return on investments in child health, education etc rather than in climate mitigation; especially when the discount rate is anything other than epsilon. Perhaps now the costs of climate change are understood to be greater and so the balance of that debate is shifting.
Post a Comment